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UK sanctions and export controls: impact of Brexit?

Developments in EU sanctions in the last few years have highlighted their importance as a foreign policy tool. The UK has played a key role in these developments, for example being a party to the Joint Comprehensive Plan of Action with Iran and a vocal advocate of sanctions against Russia. But what impact will Brexit have on the UK’s sanctions and export controls regimes?

In the UK, sanctions legislation largely derives from three sources: (1) UN Security Council resolutions, (2) EU sanctions (which either implement UN sanctions or represent autonomous EU sanctions) and (3) the UK’s own autonomous sanctions, which relate mainly to terrorism and crime.

One certainty is that Brexit will not affect the UK’s obligation to implement UN sanctions, which historically has been done via the United Nations Act 1946 and, more recently, through EU legislation and related UK instruments made under the European Communities Act 1972. After Brexit, the UK will continue to implement these sanctions, presumably under the United Nations Act and/or the Government’s “Great Repeal Bill” (GRB), which is expected to translate existing EU law into UK law and come into force on Brexit. In a similar vein, we expect the UK’s existing autonomous sanctions regimes to substantively remain in effect.

The question arises, however, what approach the UK will take to autonomous EU sanctions, both those that exist or come into force at the time of Brexit and also those imposed by the EU after Brexit. The answers to these questions are naturally uncertain: sanctions are a foreign policy tool and it is difficult to predict the likely course of the UK’s foreign policy once it exits the EU. The recent US presidential election has only increased that uncertainty, by raising questions over what the new US administration’s approach to sanctions will be and what impact this could have on the UK.

The UK may opt to implement all existing autonomous EU sanctions en masse on Brexit, under the GRB. However, given that Brexit will follow sometime after the GRB, UK foreign policy developments in the interim could potentially result in legislation being passed to repeal or amend parts of these sanctions on Brexit.

From an economic perspective, it may make sense for the Government not to implement sanctions which are materially more restrictive than existing or new EU sanctions, especially where the UK has significant trade with a particular country. Voices within industry may question why the UK feels it needs to do more than the EU, at least absent some clear foreign policy objective. This approach also has the value of certainty: UK-based businesses, and especially financial institutions, will not initially be required to re-assess their sanctions risk, or develop parallel compliance strategies for UK and European operations. Moreover, their international partners will not be deterred from conducting transactions in and through the UK, in favour of other European countries, for fear of increased sanctions risk. This approach may therefore help to maintain London’s role after Brexit as a global financial hub.

That said, there could be exceptions in cases of special foreign policy interests, including the UK’s relationship with the new US administration. For example, the President-Elect severely criticised the Joint Comprehensive Plan of Action with Iran during the campaign. If he were to impose new sanctions on Iran, there might be pressure on the UK to follow suit, although one suspects that currently at least the UK would have little appetite to do so.

On the other hand, political factors may mitigate against the UK imposing materially less restrictive measures than the EU. The UK has the fifth largest economy in the world and will therefore continue to be an important “plank” of multilateral sanctions regimes. There will likely be an expectation, coming as much from the US as from the EU, to maintain a united front on the implementation of sanctions, at least in most cases. However, comments by the President-Elect during the campaign suggest that Russia might be an exception, although this is far from certain. In recent days, the EU’s foreign policy chief, Federica Mogherini, has indicated that the EU will not change its policy toward Russia even if the US does. It will be interesting to see what line the UK takes in cases where, like Russia and Iran, the foreign policy interests of the EU and US diverge, and indeed whether UK might seek to act as a trans-Atlantic mediator with a view to finding a common position.

With respect to export controls, the kinds of technology controlled by the UK and the EU should remain broadly similar, as the UK is, independent of the EU, a member of the key international regimes that underlie the EU’s export control framework (for example, the Wassenaar Arrangement relating to conventional arms and dual-use goods). However, differences could creep in where the EU or the UK create autonomous lists of controlled items, or impose new dual-use licensing controls. For example, the European Commission’s proposal for changes to the EU dual-use regime published in September 2016 suggested introducing (inter alia) an autonomous list of controlled cyber surveillance technologies, and a new end-use control on persons involved in violations of human rights or international humanitarian law. If these particular proposals are implemented pre-Brexit, the UK will be bound by them, but in any case they indicate how divergences between the EU and UK could arise in future.

In summary, economic and political factors could motivate the UK to remain broadly in line with the EU on sanctions, but the UK’s own foreign policy interests, including its relationship with the new US administration, could override these factors, as the UK seeks to carve out a new role for itself on the world stage. Divergences in export controls are likely to be less dramatic relatively speaking, given that the fundamental populations of controlled technology are shared between the EU and UK, and legislative developments in this area tend to be slow in any case.

Brexit: planning for the future as negotiations continue

We have created this Brexit blog to provide up to date analysis and legal commentary as the new Brexit landscape evolves, addressing key questions and topics of interest to our clients across the different industry sectors in which they operate.